Category Archives: Dynamic Discounting

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

Few source-to-pay platforms, payment processors or other networks have been able to develop early pay dynamic discounting management (DDM) or supply chain finance solutions that have added significant revenue to their enterprises. (See Why Platforms Need to Monetize Their Supplier Ecosystem.)

This comes at a time when these platforms are building new capabilities to boost revenues, including providing supplier invoice aggregation services; adding payment functionality; and helping clients migrate to cloud solutions.

From my conversations with many S2P platform vendors and payment processors, I hear three buckets of objections:

There are three buyer-centric solutions to facilitate early payment for suppliers: supply chain finance, dynamic discounting and commercial cards (p-cards, v-cards). Bank-developed solutions in this space rely heavily on companies using credit lines. The focal point tends to be on p-card solutions, not dynamic discounting. Why? P-cards generate much more in fee revenue than dynamic discounting, particularly if a client uses its own funds to facilitate early payment instead of a bank credit line.

In banking, technology and treasury circles, one rarely hears any mention of Ariba in regards to trade financing these days. Compared with other B2B tech plays making plays these days on the financing side around new or expanded initiatives such as Taulia, Basware, C2FO, Kyriba, Prime Revenue and others – often times in very different ways and different markets – Ariba has been relatively quiet of late surrounding new initiatives. (But there does appear to be some activity behind the scenes – more on this in the next installment of this series.) The one area that Ariba has quietly been promoting is invoice discounting adoption. This is not bad. In fact, it probably makes Ariba one of the larger providers today with an electronic invoicing or supplier network capability tied to some type of invoice discounting solution.

With an increased awareness over reducing supply risk and implementing working capital programs, the world of trade financing is increasingly coming to procurement and supply chain organizations. In addition, many procurement organizations are entering new levels of maturity with their purchase-to-pay (P2P) programs and systems that can serve as a foundation for a range of trade financing initiatives, starting first with approved invoices as a trigger for early payment. But trade financing can appear complicated from the outside. To assess whether you’re ready to take the plunge in developing and implementing a broader trade financing strategy with a procurement-centric (i.e., holistic supplier engagement that balances a range of elements) model in mind, you need to ask yourself a few questions first.

To understand how to most effectively, affordably and sustainably accelerate the flow of cash in the supply chain for all parties, understanding the history of the market itself is essential. An understanding of the structural changes that have taken place with purchase-to-pay (P2P) technologies in recent years, which stand to usher in a new era of early payment programs, is vital as well. My colleague David Gustin recently penned a paper, Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain, that provides a great overview of the topic for those just getting into it or looking to accelerate their knowledge of the different programs available from procurement and accounts payable perspectives. But even before exploring these options, it is important to understand the evolution of transactions between buyers and suppliers.